U.S., Korea Move to Revive Stalled Free-Trade Pact as Deadline Nears

By

Elizabeth Williamson And

Bob Davis

Updated Oct. 28, 2010 12:01 a.m. ET

WASHINGTON—South Korea and the U.S. are ramping up efforts to resuscitate a stalled trade pact that sparked riots in Seoul and political battles in Washington, but is seen by both governments as crucial to U.S.-Asia relations.

U.S. Trade Representative Ron Kirk met his counterpart, Korean Trade Minister Kim Jong-hoon, in San Francisco on Tuesday and Wednesday, their first face-to-face meeting on the U.S.-South Korea Free Trade Agreement. The deal—the largest U.S. bilateral trade pact since the North American Free Trade Agreement with Mexico and Canada—was negotiated during the Bush administration, but was never submitted to Congress for a vote by President Barack Obama, who criticized it during the 2008 presidential campaign.

The latest talks focus on the two parts of the pact that make it contentious: barriers to U.S. exports of beef and autos. U.S. and Korean officials wouldn't discuss particulars of the talks.

Mr. Obama and South Korean President Lee Myung-bak said in June they would try to resolve remaining issues before leaders of the Group of 20 leading nations meet in Seoul on Nov. 11. The U.S. and Korean representatives plan to meet in Korea shortly after Tuesday's U.S. election, said a business executive briefed on the plans.

"The political dynamics are such that they can't close a deal before the deadline—and the deadline is the president arriving in Seoul," said Karan Bhatia, a former Bush administration trade official who negotiated the South Korea deal. Deadlines are crucial in trade deals, Mr. Bahtia said, because they force negotiators to end posturing and make final concessions.

Trade experts in the U.S. and Korea said resolving the technical details of autos and beef are relatively straightforward, but the politics are tortuous in both countries. In the U.S., a majority of House Democrats—and some Republicans—oppose trade pacts negotiated by the Bush administration with South Korea as well as two much smaller countries, Panama and Colombia, arguing that they make it easier for U.S. firms to move overseas. Mr. Obama hasn't tried to move any of the deals, fearing that doing so would split the Democrats.

Ford Motor Co. and Chrysler LLC say the Korea pact, as negotiated, doesn't sufficiently open the Korean market to imports.

In South Korea, imports of U.S. beef have led to riots; opponents say they fear imports are infected with bovine spongiform encephalopathy—mad cow disease. The country lifted a ban on U.S. beef in 2008, but in a nod to South Korean public opinion, the U.S. beef industry agreed not to export beef from cows older than 30 months.

U.S. beef exports to South Korea are now climbing, helped by the cheap dollar. But Senate Finance Committee Chairman Max Baucus of Montana, a state that exports beef from older cows, is pushing for a substantial change in beef provisions.

In the U.S., Democratic candidates have responded to voter angst about trade and outsourcing by attacking the Korea trade deal; the administration has stepped gingerly. A few weeks ago, a deputy U.S. Trade Representative met his Korean counterpart in Paris, and technocrats from both sides have also met.

The U.S. has put forward specific proposals on these issues, though the two sides are far from a deal. But next week's U.S. elections could change the dynamics. Mr. Lee is looking to make the Seoul summit a success, and Mr. Obama may be looking for business-friendly policies that might win Republican backing as well as a way to underscore his eagerness to boost U.S. exports.

The Obama administration has worked quietly with the U.S. Chamber of Commerce on this issue, even as the chamber's funding of Republican candidates has drawn blasts from the president. In mid-October, a chamber-organized delegation of 20 business executives, including representatives from Boeing Co.BA0.81%, Citigroup Inc.,C-0.71%Chevron Corp.CVX-4.89%, General Electric Co.GE-0.08% and Goldman SachsGS-1.03% Group Inc. met in Seoul with business leaders and Mr. Kim, the trade minister.

According to Tami Overby, the Chamber's Asia vice president, the group told the Koreans that the pact was of great importance to both nations, would augment cooperation on national security and would help counterbalance the growing influence of China. But the group also warned the Koreans that they shouldn't expect easy passage of the pact even if Republicans win control of Congress. Ms. Overby said she is "cautiously optimistic" the two sides can strike a deal.

Jeffrey Schott, a trade analyst at the Peterson Institute for International Economics, a pro-globalization Washington think tank, said the Obama administration wants to push the pact through Congress to show Asian nations that the U.S. is still interested in trade expansion.

A new European Union free-trade accord with Seoul, which goes into effect in July 2011, could put U.S. companies at a disadvantage if Washington and Seoul don't strike a deal. Mr. Schott suggested language from the EU deal on autos could assure U.S. automakers that Korea will eliminate regulatory and informal barriers to exports and that the that the beef issue could be resolved by revamping the private-sector deal that bars older cows.

Gregg Doud, chief economist of the National Cattlemen's Beef Association, said the group supports the pact even without additional changes because it would eliminate Korea's 40% tariff on imported beef over 15 years. The U.S.'s main rival in the South Korean beef market is Australia, which is negotiating its own free-trade pact with Seoul.

"We're scared to death the Australians will beat us to the punch," he said.

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